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on Post Keynesian Economics |
| By: | Eugenio Caverzasi |
| Abstract: | This paper addresses the critique of the aggregational problem attached to the financial instability hypothesis of Hyman Minsky. The core of this critique is based on the Kaleckian analytical framework and, in very broad terms, states that the expenditure of ï¬rms for investment is at the same time a source of income for the ï¬rms producing capital goods. Hence, even if investments are debt ï¬nanced, as in Minsky's analysis, the overall level of indebtedness of the ï¬rm sector remains unchanged, since the debts of investing ï¬rms are balanced by the income of capital goods–producing ï¬rms. According to the critics, Minsky incurs a fallacy of composition when he does not take this dynamic into account when applying his micro analysis of investment at the macro level. The aim of this paper is to clarify the consequences of debt-ï¬nanced investments over the ï¬nancial structure of an aggregate economy. Starting from the works of MichaÅ‚ Kalecki and Josef Steindl, we developed a stock-flow consistent analysis of a highly simpliï¬ed economy under four different ï¬nancial regimes: (1) debt-ï¬nanced with no distributed profits, (2) debt-ï¬nanced with distributed proï¬ts, (3) internally ï¬nanced with no distributed proï¬ts, and (4) internally ï¬nanced with distributed proï¬ts. The results of our investigation show that debt-ï¬nanced investments do not lead to a worsening of the ï¬nancial position of the ï¬rm sector only if specific assumptions are taken into account. |
| Keywords: | Hyman Minsky; Financial Instability Hypothesis; Stock-flow Consistent; Financial Fragility; Debt Financing |
| JEL: | B5 E12 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_753&r=pke |
| By: | Philip Arestis; Ana Rosa Gonzalez |
| Abstract: | The relevant economic literature frequently focuses on the impact of credit shocks on housing prices. The doctrine of the "New Consensus Macroeconomics" completely ignores bank credit. The "Great Recession," however, has highlighted the significance of bank credit. The purpose of this contribution is to revisit this important macroeconomic variable. We propose to endogenize the volume of bank credit by paying special attention to those variables that are related to the real estate market, which can be considered key to the evolution of bank credit. Our theoretical hypothesis is tested by means of a sample of 15 Organisation for Economic Co-operation and Development (OECD) economies from 1970 to 2011. We apply the cointegration technique for the latter purpose, which permits the modeling of the long-run equilibrium relationship and the dynamics of the short run, along with an error-correction term. |
| Keywords: | Bank Credit; Collateral Channel; Housing Market; OECD Countries; Empirical Modeling |
| JEL: | C22 R31 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_750&r=pke |
| By: | Thorvald Grung Moe |
| Abstract: | The global financial crisis has generated renewed interest in the 1951 Treasury - Federal Reserve Accord and its lessons for central bank independence. A broader interpretation of the Accord and of Marriner S. Eccles's role at the Federal Reserve should teach central bankers that independence can be crucial for fighting inflation, but also encourage them to be more supportive of government efforts to fight deflation and mass unemployment. |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levyop:op_37&r=pke |
| By: | Esteban Pérez Caldentey; Daniel Titelman; Pablo Carvallo |
| Abstract: | Using two standard cycle methodologies (classical and deviation cycle) and a comprehensive sample of 83 countries worldwide, including all developing regions, we show that the Latin American and Caribbean cycle exhibits two distinctive features. First, and most important, its expansion performance is shorter and, for the most part, less intense than that of the rest of the regions considered; in particular, that of East Asia and the Pacific. East Asia's and the Pacific's expansions last five years longer than those of Latin American and the Caribbean, and its output gain is 50 percent greater. Second, the Latin American and Caribbean region tends to exhibit contractions that are not significantly different from those other regions in terms of duration and amplitude. Both these features imply that the complete Latin American and Caribbean cycle has, overall, the shortest duration and smallest amplitude in relation to other regions. The specificities of the Latin American and Caribbean cycle are not confined to the short run. These are also reflected in variables such as productivity and investment, which are linked to long-run growth. East Asia's and the Pacific's cumulative gain in labor productivity during the expansionary phase is twice that of Latin American and the Caribbean. Moreover, the evidence also shows that the effects of the contraction in public investment surpass those of the expansion, leading to a declining trend over the entire cycle. In this sense, we suggest that policy analysis needs to increase its focus on the expansionary phase of the cycle. Improving our knowledge of the differences in the expansionary dynamics of countries and regions can further our understanding of the differences in their rates of growth and levels of development. We also suggest that, while the management of the cycle affects the short-run fluctuations of economic activity and therefore volatility, it is not trend neutral. Hence, the effects of aggregate demand management policies may be more persistent over time, and less transitory, than currently thought. |
| Keywords: | Latin American Business Cycle; Classical Cycle; Deviation Cycle; Expansions; Trend and Cycle; Productivity; Investment |
| JEL: | E32 F44 O11 O54 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_749&r=pke |
| By: | Thomas M. Humphrey |
| Abstract: | Nineteenth-century British economists Henry Thornton and Walter Bagehot established the classical rules of behavior for a central bank, acting as lender of last resort, seeking to avert panics and crises: Lend freely (to temporarily illiquid but solvent borrowers only) against the security of sound collateral and at above-market, penalty interest rates. Deny aid to unsound, insolvent borrowers. Preannounce your commitment to lend freely in all future panics. Also lend for short periods only, and have a clear, simple, certain exit strategy. The purpose is to prevent bank runs and money-stock collapses--collapses that, by reducing spending and prices, will, in the face of downward inflexibility of nominal wages, produce falls in output and employment. In the financial crisis of 2008-09 the Federal Reserve adhered to some of the classical rules--albeit using a credit-easing rather than a money stock–protection rationale--while deviating from others. Consistent with the classicals, the Fed filled the market with liquidity while lending to a wide variety of borrowers on an extended array of assets. But it departed from the classical prescription in charging subsidy rather than penalty rates, in lending against tarnished collateral and/or purchasing assets of questionable value, in bailing out insolvent borrowers, in extending its lending deadlines beyond intervals approved by classicals, and in failing both to precommit to avert all future crises and to articulate an unambiguous exit strategy. Given that classicals demonstrated that satiating panic-induced demands for cash are sufficient to end crises, the Fed might think of abandoning its costly and arguably inessential deviations from the classical model and, instead, return to it. |
| Keywords: | Lender of Last Resort; Financial Crises; Bank Panics; Bank Runs; Bailouts; Penalty Rates; Collateral; High-powered Monetary Base; Broad Money Stock; Multiplier; Federal Reserve Policy; Liquidity; Insolvency; Emergency Lending; Credit Risk Spreads; Systemic Risks; Classical Economists |
| JEL: | E44 E51 E58 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_751&r=pke |
| By: | Barry Z. Cynamon; Steven M. Fazzari |
| Abstract: | One might expect that rising US income inequality would reduce demand growth and create a drag on the economy because higher-income groups spend a smaller share of income. But during a quarter century of rising inequality, US growth and employment were reasonably strong, by historical standards, until the Great Recession. This paper analyzes this paradox by disaggregating household spending, income, saving, and debt between the bottom 95 percent and top 5 percent of the income distribution. We find that the top 5 percent did indeed spend a smaller share of income, but demand drag did not occur because the spending share of the bottom 95 percent rose, accompanied by a historic increase in borrowing. The unsustainable rise in household leverage concentrated in the bottom 95 percent ultimately spawned the Great Recession. The demand drag of rising inequality could be one explanation for the stagnant recovery in the recession’s aftermath. |
| Keywords: | Consumption; Saving; Inequality; Aggregate Demand |
| JEL: | D12 D31 E21 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_752&r=pke |
| By: | Wendy Dunn |
| Abstract: | Although job creation has improved, since the end of the 2007-08 recession, the effects of the recession on the labour market remain severe. Unemployment duration is still extremely high, and many have withdrawn from the labour market altogether. Because the weakness is largely cyclical in nature, policy makers should place a high priority on supporting aggregate demand in the short term. Even so, policies are needed to help individuals return to work, as there is a risk that high long-term unemployment and weak labour market participation could evolve into structural problems. Greater emphasis should be put on activation measures that help individuals search for jobs more effectively or find adequate training programmes. In the longer run, education and training are key to raising the skills and wages of the workforce. In this regard, educational reforms are needed to increase student achievement at all levels. High-quality vocational training can also be used to advance the skills of high-school graduates. College completion rates could be improved by reducing financial and other barriers to education, and enhancing the community college system would be a cost-effective way to provide more individuals with an affordable way to obtain tertiary education. Disability insurance reforms are needed to reduce dependency on these programmes and encourage participation in the workforce. This Working Paper relates to the 2012 OECD Economic Survey of the United States (www.oecd.org/eco/surveys/United States).<P>La reprise du marché du travail aux États-Unis après la grande récession<BR>Bien que la création d'emplois ait repris, les effets de la récession se font toujours sentir sur le marché du travail. La durée du chômage reste très élevée et beaucoup ont cessé de chercher un emploi. Compte tenu du caractère largement conjoncturel de cette situation difficile, les autorités devraient donner à court terme la priorité au soutien de la demande. Mais il faut également prendre des mesures pour faciliter le retour à l'emploi, car le risque existe que le niveau élevé du chômage de longue durée et la faiblesse du taux d’activité deviennent des problèmes structurels. Il convient de mettre davantage l’accent sur les mesures d’incitation à la reprise d’un travail afin d’aider les chômeurs à rechercher un emploi ou à trouver des programmes de formation adéquats. À plus long terme, l’éducation et la formation vont jouer un rôle-clé dans l’amélioration des compétences et des salaires de la main-d’oeuvre. C'est pourquoi des réformes du système éducatif s'imposent pour améliorer le taux de réussite à tous les niveaux d'études. Une formation professionnelle de qualité peut aussi permettre de développer les compétences des diplômés de l'enseignement secondaire. Réduire les obstacles financiers et autres qui empêchent l’accès à l’éducation serait un moyen d’augmenter les taux de réussite dans l'enseignement supérieur, et améliorer le système des community colleges permettrait, à un coût raisonnable, d’offrir à davantage de personnes la possibilité de suivre des études supérieures dans des conditions financièrement accessibles. Enfin, des réformes de l'assurance invalidité sont nécessaires pour diminuer la dépendance à l'égard de ce régime et encourager le retour sur le marché du travail. Ce Document de travail se rapporte à l'Étude économique de l'OCDE des États Unis 2012 (www.oecd.org/eco/etudes/Etats Unis). |
| Keywords: | human capital, disability, vocational training, labour market participation, activation policies, structural unemployment, long-term unemployment, Unemployment duration, job creation, hiring subsidies, capital humain, invalidité, formation professionnelle, participation au marché du travail, politiques d'activation, chômage structurel, chômage de longue durée, durée de chômage, création de l'emploi, subventions à l'embauche |
| JEL: | J2 J6 |
| Date: | 2013–01–28 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1015-en&r=pke |